Reading lecture 9 Flashcards
What explains the improvement in human performance in sports?
- keeping track of current performance through time
- keep track of performance and factors that affect it
- rewards (fosters motivation)
purchasing performance
degree to which the purchasing function can reach its goals by using the minimum resources
How to measure purchasing performance?
with efficiency and effectiveness
Efficiency
resources and costs made to achieve objectives and goals
administrative lead times, order per purchases
Effectiveness
results achieved through activities
e.g. material costs, quality, logistics, innovation
results achieved
comparison of goals we had in mind and what we actually achieved
dimensions that measurement and evaluation of purchasing activities are based on
price/cost dimension
product/quality dimension
logistics dimension
organizational dimension
price/cost dimension
important to get competitive prices from suppliers
product/quality
competitive prices only useful if flawless quality
logistics dimension
delivery of flawless quality on time and right quantity
organizational dimension
too many employees is useless because resources will outweigh results
fallacy of most organizations
- focus more on efficiency than on effectiveness
- care more about budget spend than on actual results
ROI
defined by turnover ratio = sales turnover/ networking capital
net working capital
= total assets - interest free liabilities
ROI margin
the same absolute improvement in sales turnover, as in purchase expenditure will have a much smaller effect on absolute profits and thus ROI margin
largest cost category for companies
spend with supplier
effects of under and over statement of savings
signals wrong reality
low yielding cost initiatives
misdirected corporate resources
rewarding wrong behavior
research objective
identify major SC changes occurring in large companies
factors preventing from accurately measuring and capturing supply savings
- systems don’t account for savings
- changes in market, technology, volumes
- unwillingness to recognize cumulative savings
- incomplete definition of supply saving
- inability to convert savings into profit
- reluctance to revisit past decisions
systems don’t account for savings
accounting does not get involved
inappropriate rules –> inappropriate behavior
greatest value improvement at need definition and specification stage
internal cross functional cooperation –> to find match between strategic and operational
need to redesign SC, use different suppliers, substitute materials
changes in market, technology, and volume
- volume changes one of the most common
Unwillingness to recognize cumulative savings
ignoring multi year price reduction potential leads to under stating savings
incomplete definition of supply savings
switching costs often ignored
inability to convert savings into profit
savings tend to disappear
tendency to redirect savings to other uses
reluctance to revisit past decisions
after finding potential savings improvement attention turns backwards
maximizing supply savings
- focus on total cost of ownership
- different types of saving
- hardwire supply savings to the budget
total cost of ownership
focus on corporate vs SC savings
give credit to contributors
life cycle costs and trade offs can lead to better solutions
categorize different types of savings
market fluctuation savings
routine price and total cost of ownership savings
special cross functional efforts
savings from price increases
market fluctuations savings
report when relevant
no special effort
context should be clear
routine price and total cost of ownership savings
report quarterly
should fall in the 1-5%
expected from professionals
special cross functional efforts
report when initiatives are completed
savings from price increases
should be tracked and reported quarterly
hardwire supply savings to the budget
debates about validity best settled by looking at budget implications
useful for executives to have a sense of the nature and size of possible gaps
learning curves
applies to direct labor portion of costs
only concerns itself with changes due to labor requirements
Theoretical best pricing (TBP)
- detailed cost data from suppliers
- result of combining best cost elements from different suppliers
- 2 purposes: arrive at a benchmark, identify areas where costs are out of line
configured sourcing network
- analyses quotation from several suppliers
- assumes no differences between items from different suppliers
- considers annual volumes
- prices that each supplier quote are independent from each other
